Compensation received thru lawsuit

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  • JT2307
    Senior Member
    • Jan 2009
    • 105

    #1

    Compensation received thru lawsuit

    Client won a lawsuit and was awarded one years salary. Insurance company reported it as 1099 - nonemployee compensation. Should this be subject to selfemployment tax? I think it should have been classified as other income. Why should they have to pay the employers portion?
    Am I missing something?
  • mactoolsix
    Senior Member
    • Apr 2009
    • 544

    #2
    There is a lengthy discussion here in the IRS Lawsuits, Awards, and Settlements Audit Techniques Guide, chapter 3.

    "There is general agreement that to the extent damages are excludable from gross income, they are not subject to employment taxes. Also, there is general agreement among courts that to the extent a settlement payment made by an employer or former employer represents back pay for services by an employee for the employer, such payments are wages for employment tax purposes. Rev. Rul. 96-65."

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    • Jiggers
      Senior Member
      • Sep 2005
      • 1973

      #3
      So it belongs on a W-2?
      Jiggers, EA

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